The stages of a transaction

Real estate transactions generate a great deal of written communications; Contracts, attorney review letters, inspection reports, negotiation letters, title commitments, etc. Many of these items will require your review and comment. My policy is for you to see everything that is happening with your file as soon as it happens.

We distribute everything as email attachments. All letters are forwarded via email to our clients and to the realtors. This includes items drafted within my offices as well as everything that comes in from outside sources. We turn everything in to a pdf file and email it to you upon receipt.

In the interest of total transparency, I’ve compiled a list of answers to some of the most common questions people sometimes have during the transaction.

Before you look for a home

When you’ve decided that you would like to own a home the first step is to determine how much home you can afford. Meet with a mortgage professional to review your income, assets, credit, etc. to find out. There are many mortgage companies out there, and your choice of lender may determine whether your transaction is a dream or a nightmare, so choose wisely. I recommend that you choose someone local that you can reach when you need to, and can sit down with when necessary. I do not recommend choosing an internet based lender where all contact is online or through the telephone.

When interviewing mortgage lenders, keep in mind that each time a lender checks your credit score, the score may drop slightly. Therefore, first choose your lender, based on their estimated interest rates, fees and upon your interview of the representatives. After you have chosen the lender, then have that lender run your credit score so that he can quote you the actual rates based on your credit.

Now that you know how much house you can afford, the next step is to put together the team of real estate professionals that will help you achieve your goals. Your team will include a realtor, a real estate attorney, a home inspector and an insurance professional.

Finding a home

Once your team is in place it is time to find the perfect home. Your realtor should know your price range as well as your preferences for type of home, neighborhood, etc., and will show you all of the available homes that meet your criteria.

Keep in mind that your realtor is a professional who has invested his or her time in helping you find the right home. You should honor that relationship and call your realtor before viewing any homes. For example, if you ever see a home that your realtor has not already discussed with you, or an open house or perhaps a ‘for sale by owner’, always contact your realtor. Do not call the homeowner or the agent whose name is on the sign. Chances are your agent is already aware of the home and can tell you if it meets your requirements. If the house is worth your consideration, your agent will contact the homeowner or listing agent on your behalf to make the arrangements to see it.

Offer & Acceptance

Once you have chosen the right house for you and have determined the price that you are willing to pay, your realtor will provide a draft contract. You will complete the document with your offer price, the amount of down payment, the amount to be financed, the requested closing date, inclusions/exclusions, and any other conditions of the offer. The offer is presented to the seller via the listing agent and the seller may reject, accept, or counter-offer. If the offer is accepted or once you are able to negotiate to mutually acceptable terms, the seller will sign the offer and this fully executed document becomes the Contract.

Attorney Review

Your realtor will forward the executed contract to your attorney and also to the seller’s attorney. Attorney Review is the opportunity for the attorneys on both sides of the transaction to review the Contract and request changes that the attorneys feel are in their client’s best interests. Don’t be alarmed when you see an attorney letter saying that the Contract is “disapproved”. This is the standard beginning to attorney review. Once the requested changes are discussed, negotiated, and finally agreed-upon, the contract will be out of attorney review and is then considered a binding contract.

There are three main things you need to know about Attorney Review:

First, Attorney Review is not three days. The three day period is the time during which the first Review letter must be sent. If the attorneys do not “disapprove” of the Contract within the first three business days the Contract will be binding as written.

The Contract is not binding on either party until the Review is concluded. This means that it is important that the Review be conducted, and concluded, as quickly as possible.

Third, if you have any questions about the Contract, or if there is anything that you feel MUST be added to the Contract, we need to discuss it before Attorney Review is concluded.

Inspections

The inspection contingency is intended to protect you from serious problems with the home. This would include structural defects, wood destroying insects, safety hazards and environmental hazards. The inspection contingency does not apply to minor maintenance items, cosmetic defects, or items which are simply old, if they nevertheless are in proper working order.

You should have your inspections performed as quickly as possible once the contract is out of attorney review. The contract will have a time limit for doing so. You will choose and hire the inspectors and your realtor will handle the logistics of access to the home at the appropriate time.

The most common inspections are the structural inspection, wood destroying insect inspection, pool and septic inspections (if applicable), underground oil tank sweep and radon test. Based on the results of the initial inspections you may also wish to have further testing performed, such as asbestos tests, mold tests, ‘level II’ chimney test, lead paint tests, etc. If the home has well water, it is the seller’s responsibility to have a well water quality test performed. It is also the seller’s responsibility to have any municipal inspections (smoke detector certificate, certificate of occupancy) performed and to obtain the certificates.

Your inspector will send the reports to you and should also copy your attorney. You will review the reports with your attorney to discuss the issues, if any, that you may ask the sellers to remedy prior to closing. Your attorney will send copies of the reports to the seller’s attorney along with a list of your repair demands.

The sellers will respond to your demands and the response could be that they will address all issues, or that they will address none of the issues, or something in between. The parties will negotiate, hopefully, to a mutually acceptable agreement.If defects are found, and if the seller refuses to address the defects, the buyer may have the right to cancel the Contract and would be entitled to the return of any down payment.

In some cases the parties may agree upon monetary credits in lieu of actual repairs. This could be advantageous to both parties. Keep in mind, however, that any such credits must be approved by the buyer’s mortgage lender. There will be specific rules regarding whether credits are allowed and, if so, how large they may be.

One common misconception in real estate transactions is the meaning of “As-Is”. In most cases, even if a transaction is “As-Is” the buyer is still entitled to the usual home inspections. If a serious defect is found, the seller is not legally obligated to make the repair, but the buyer will still have the right to cancel the Contract.

The Contract will contain the date by which the buyer is required to obtain a mortgage commitment. If the commitment is not obtained by this date the seller could cancel the Contract.

The commitment is issued by the buyer’s mortgage lender after the lender has put the loan application through processing (document gathering) and underwriting (document review).

Your lender will complete a mortgage application with you and will ask for documentation regarding your finances. Be prepared to provide bank statements, pay slips, W2’s, tax returns, etc. Be prepared to explain any unusual deposits to your accounts. Keep copies of everything you provide and be prepared to resubmit those items. Stay on top of your loan officer and on the loan processor to make sure that the process keeps moving forward.

Purchase agreement for the house

Bank statements for the last three months

Investment statements for the last three months: IRA/401(k), stocks, bonds, Certificates of Deposit (CD’s)

Up to one year’s worth of canceled rent checks, or your landlord’s phone number

Previous rental information including address, and names and addresses of previous landlords

Your most recent pay stub and the past two years’ W-2 withholding forms

Schedule C attachments if you’re self-employed

Utility bills

Statements or pay stubs for car loans, student loans, and other personal loans

Divorce papers, if applicable – and especially if you plan to use alimony or child support as income

Balance sheets and tax returns

Social security card and driver’s license

Part of the mortgage underwriting will be an appraisal to confirm the value of the home. The appraisal is arranged by the mortgage lender, but will be at your cost. The appraiser should contact your realtor for access to the home.

Once you have applied for your financing, do not make any changes to your financial status without speaking with your loan officer first. Do not change jobs, do not make any major purchases, do not take out any new credit, and do not allow any bills to go 30 days beyond their due dates. Your lender will do credit and employment verifications shortly before closing.

Types of loans:

Conventional

FHA/VA

Rehab, 203k

When choosing a mortgage professional there is more to consider than rates alone. Choose a mortgage lender that will give your transaction the attention it deserves; someone that you can reach when you need them and that will be with you through the entire transaction.

Remember that if a mortgage deal seems too good to be true, it probably is. I have seen many cases where lenders that quoted the lowest rates upfront will try to add in extras fees and costs at closing.

Title Searches & Insurance

Title insurance protects you and your mortgage lender against any title claims to the property. Title claims could be anyone claiming an ownership interest in the property or a lien against the property.

Your attorney will arrange for a title insurance agency to prepare a title report for the home. The company will search the County and State records and will report upon the owners of the home, prior owners, tax payment status and any liens against the property. The report is also a commitment from the title agency to insure the title to the home as long as certain requirements are met.

The cost of the title searches and the premiums for the title insurance policies are paid by the buyer at closing. These costs are regulated and do not vary from one agency to another.

Property Survey

A title insurance agency will bring in a surveyor to survey the property. The survey is a layout of the property lines and shows all of the improvements (home, garage, driveway, fences, patio, etc.). This provides the legal description of what you are buying and also shows if there are any encroachments, ie: improvements that extend over a property line. The survey will also show any easements on the property as well as any building setback lines.

As with the title insurance, the cost of the survey is paid by the buyer at closing. The cost is usually $350 for a condominium, $685 for a normal size detached home, or more for extra large properties.

Closing Preparation

The closing should be the easiest part of the entire transaction. As long as the seller, the attorneys, the mortgage company and the title company have done their part in advance.

Prior to the closing you will do a final walk-through of the home. This is to ensure that the sellers have completely moved out, that any agreed upon repairs have been completed, and that the home is in ‘broom clean’ condition. If there are any problems at the walk-through, call your attorney right away. This will give him/her a chance to have the issues addressed before everyone arrives for the closing.

Also prior to closing you will have to go to your bank to arrange for the funds for the closing. The settlement agent cannot accept a personal check, so you will have to arrange either a wire transfer or a teller check. Your attorney will give you the amount needed as well as the wire or check instructions as far in advance of closing as possible. This usually works out to be the day before closing, depending upon when the mortgage lender provides the settlement figures.

Be sure to have home insurance (hazard insurance) arranged and effective as of the day of closing.

All buyers and their spouses must attend unless told otherwise

Photo identification is required

The Closing

The closing itself occurs in two parts. The first part is the closing of the buyer’s mortgage. This usually takes about 30 to 45 minutes. As the mortgage documents are highly standardized, and non-negotiable, the buyer is not expected to carefully read the documents at the closing. The attorney will provide a brief description of each document, along with its legal ramifications, as each document is presented for signature.

The second part of the closing is the closing of title, during which the seller’s attorney will provide a Deed which transfers ownership of the home to the buyers, along with other necessary documents. The buyers will get keys to the home and the sellers will receive the funds due to them.

If everyone has done their job properly the closing itself should be the easiest part of the entire transaction. We will have all necessary documents, including the settlement statement, prepared and reviewed in advance of closing. We will also have the Deed and other seller documents reviewed and approved by the title company in advance of closing.

Once the closing is concluded, the home is yours. You will leave your attorney’s office with a Deed to the home and keys. You can start moving in right away.